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Reporting Foreign Transactions

When foreign amounts, including purchases and sales, income, expenses, and foreign
taxes paid, are reported on your Canadian personal or corporate income tax return, they must
be reported in Canadian dollars.

Sales of investments are recorded on Schedule 3 of the personal
tax return, in Canadian dollars. At the same time, the adjusted
cost base (ACB) of that investment is also recorded in Canadian
dollars. If you have non-registered
investments held in US$, it's very important to keep accurate records of the
date the investments were purchased, and the exchange rate on that date, to
calculate your Canadian dollar ACB. Your brokerage statements will show
you the US$ ACB of your investments, but will not show you the Cdn$ ACB.

Investment income is reported on Schedule 4 of the personal tax
return. If you are using a software package to do your tax return,
record the information from your tax slips in the tax slips area of the
return. The amounts on your tax slip may not be in Canadian dollars.
If they are not, you have to convert the amounts and enter the Canadian dollar
amounts into the tax return.

When you record the amounts from your tax slips using
personal income tax
software, any foreign withholding tax will automatically be entered into the
areas for calculating the federal and provincial foreign tax credits.
The federal foreign tax credit is calculated on Schedule T2209, and at least a
portion of it should reduce your taxes payable. The provincial or
territorial foreign tax credit is calculated on Schedule T2036. See the foreign tax
credit article for how to deduct the amount not recovered by the foreign tax
credit.

Converting Foreign Amounts to Canadian Dollars

The foreign exchange rate used to convert the foreign currency
transaction into Canadian dollars is either

the rate in effect on the date of the transaction, or

the average annual exchange rate for the taxation year

as quoted by the Bank
of Canada on the particular day or on the closest preceding day for which
a spot rate is quoted, as per the definition of "relevant spot rate"
in s. 261(1) of the Income Tax Act.

When assets, including investments, are purchased or sold,
the exchange rate in effect on the date of the transaction should be used.
Dividends received throughout the year can be converted at either the transaction date rate or the average
annual exchange rate for the taxation year, but the method used should be
consistent from year to year.

The Bank of Canada publishes the noon rate
in its historical lookup tables, and also publishes the average annual
exchange rate for the taxation year based on the noon rate. However,
effective March 1, 2017, the Bank of Canada changed how it publishes
foreign exchange rate data. It now publishes a single rate
reflecting the daily average exchange rate each day at 4:30 PM ET. See
Foreign Exchange
Rates Published by the Bank of Canada on the Bank of
Canada website.

If any income or expense that you have received or paid was
converted to Canadian dollars as part of the transaction, then the Canadian
dollar amount that you actually received or paid would be reported as your income or
expense. For example:

If you have paid tax-deductible expenses by using your
credit card, which converts the amounts into Canadian dollars, you would use
the Canadian $ amount that you actually paid.

If your foreign dividends
are received in a Canadian $ account, so that they are converted
automatically, the the amount you would report as a dividend is the Canadian $
amount that you actually received.

2018 US Exchange Average Rate

The annual average rate for converting US dollars for 2018,
as per the Bank
of Canada, was 1.2957 (1.2986 for 2017). To convert US dollar amounts to Canadian
dollars for 2017, multiply the US $ amount by 1.2986. The annual
average exchange rates for years up to and including April 28, 2017 are now considered
"legacy" rates, and can be downloaded from the Bank
of Canada Legacy Noon and Closing Rates.

Reporting Foreign Assets

If you own foreign assets with a cost basis exceeding
$100,000 Canadian at any time in the year, this must be reported
on the T1135, foreign asset verification statement. This
form must be filed by Canadian resident individuals, corporations and trusts, as
well as many partnerships. See our article on Foreign
Asset Reporting.